Fair Value Measurements

6 Months Ended

Jun. 30, 2020

. Fair Value Measurements

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Accordingly, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, there is a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair values as follows:

•Level 1 Inputs: Quoted market prices in active markets for identical assets or liabilities.

•Level 2 Inputs: Observable market-based inputs or unobservable inputs that are corroborated by market data.

•Level 3 Inputs: Unobservable inputs that are not corroborated by market data.

The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practical to estimate fair value:

Cash and Cash Equivalents: Cash equivalents include cash held in money market funds and investments that can be redeemed immediately at the current net asset value per share. A money market fund is a mutual fund whose investments are primarily in short-term debt securities designed to maximize current income with liquidity and capital preservation, usually maintaining per share net asset value at a constant amount, such as one dollar. Cash and cash equivalents also include cash maintained for gaming operations. The carrying amounts approximate the fair value because of the short maturity of those instruments (Level 1).

Restricted Cash and Investments: The estimated fair values of the Company’s restricted cash and investments are based upon quoted prices available in active markets (Level 1), or quoted prices for similar assets in active and inactive markets (Level 2), or quoted prices available in active markets adjusted for time restrictions related to the sale of the investment (Level 3) and represent the amounts the Company would expect to receive if the Company sold the restricted cash and investments.

Restricted investments include shares acquired in conjunction with the Company’s sports betting agreements that contain restrictions related to the ability to liquidate shares within a specified timeframe.

Marketable Securities: Marketable securities consist primarily of trading securities held by the Company’s captive insurance subsidiary and unrestricted shares acquired in conjunction with the Company’s sports betting agreements. The estimated fair values of the Company’s marketable securities are determined on an individual asset basis based upon quoted prices of identical assets available in active markets (Level 1), quoted prices of identical assets in inactive markets, or quoted prices for similar assets in active and inactive markets (Level 2), and represent the amounts the Company would expect to receive if the Company sold these marketable securities.

Long-term Debt: The fair value of the Company’s long-term debt or other long-term obligations is estimated based on the quoted market price of the underlying debt issue (Level 1) or, when a quoted market price is not available, the discounted cash flow of future payments utilizing current rates available to us for the debt of similar remaining maturities (Level 2). Debt obligations with a short remaining maturity have a carrying amount that approximates fair value.

Items Measured at Fair Value on a Recurring Basis: The following table sets forth the assets measured at fair value on a recurring basis, by input level, in the Consolidated Balance Sheets at June 30, 2020 and December 31, 2019 (amounts in thousands):


	June 30, 2020
Assets:	Level 1		Level 2		Level 3		Total
Restricted cash and investments	$	8,018	$	2,108	$	22,639	$	32,765
Marketable securities	27,978		8,093		—		36,071

Liabilities:
Other liabilities related to restricted investments	—		—		3,009		3,009


	December 31, 2019
Assets:	Level 1		Level 2		Level 3		Total
Restricted cash and investments	$	11,276	$	2,050	$	29,283	$	42,609
Marketable securities	27,103		7,531		—		34,634

The change in restricted cash and investments and liabilities valued using Level 3 inputs for the six months ended June 30, 2020 is as follows (amounts in thousands):


	Level 3 Investments		Level 3 Other Liabilities
Fair value of investment and liabilities at December 31, 2019	$	29,283	$	—
Value of additional investment received	4,678		2,339
Unrealized gain (loss)	(11,322)		670
Fair value at June 30, 2020	$	22,639	$	3,009

There were no transfers between Level 1, Level 2 and Level 3 investments during the six months ended June 30, 2020.

In November 2018, the Company entered into a 20-year agreement with TSG pursuant to which it agreed to provide TSG with options to obtain access to a second skin for online sports wagering and third skin for real money online gaming and poker, in each case with respect to the Company’s properties in the United States. Under the terms of the agreement, the Company will receive a revenue share from the operation of the applicable verticals by TSG under the Company’s licenses. Pursuant to the terms of the TSG agreement, the Company received 1.1 million TSG common shares, and an additional approximately $5.0 million in TSG common shares became payable to the Company upon TSG’s exercise of its first option; all shares are subject to a one year restriction on transfer from the date they are received. The Company may also receive additional TSG common shares in the future based on TSG net gaming revenue generated in its markets. On May 5, 2020, Flutter completed the acquisition of all of the issued and outstanding common shares of TSG in exchange for 0.2253 Flutter shares per common share of TSG.

As of June 30, 2020 and December 31, 2019, the fair value of unrestricted shares totaled $15.8 million and $14.0 million, respectively, net of cumulative unrealized gains of $5.5 million and $3.7 million, respectively, and is included in marketable securities on the Consolidated Balance Sheet. In addition, as of June 30, 2020, the fair value of restricted shares in Flutter totaled $6.0 million, net of cumulative unrealized gains of $1.3 million, and is included in restricted cash and investments on the Consolidated Balance Sheet. The Company recorded unrealized gains of $6.5 million and $3.1 million during the three and six months ended June 30, 2020, respectively, and unrealized gains of $0.1 million and $1.5 million during the three and six months ended June 30, 2019, respectively.

The estimated fair values of the Company’s financial instruments are as follows (amounts in thousands):


	June 30, 2020						December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial liabilities:
7% Senior Notes due 2023	$	370,683	$	382,943	$	370,077	$	390,938
6% Senior Notes due 2025	878,869		914,760		879,275		922,031
6% Senior Notes due 2026	583,126		652,782		582,042		662,250
Term Loan	481,762		483,882		490,768		498,127
Revolving Credit Facility	108,000		108,000		—		—
Lumière Loan	246,000		246,000		246,000		246,000
Other long-term debt	2,410		2,410		2,554		2,553

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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